Crowdfunding, web-entrepreneurs and data infrastructure

Over the past year, the European Crowdfunding Network has supported the European Commission’s Startup Europe initiative in understanding better crowdfunding for web-entrepreneurs. Under the working title “Startup Europe Crowdfunding Network” the results and work has been published. Now, a final report has been published, showing unique data on crowdfunding for web-entrepreneurs as well as a detailed analysis of much needed, industry wide taxonomies and data gathering processes.

According to the final report of the Startup Europe Crowdfunding Network, a support services to foster the crowdfunding environment in Europe focused on web entrepreneurs by the European Commision, networking European crowdfunding platforms around a common understanding of the industry is vital. Only with a crowdfunding environment that is marked by professionalism, transparency and coherent practices, it can be expected that potential crowd funders and web entrepreneurs will regard investment opportunities and access to finance through crowdfunding as a viable solution for their needs. The education of both, the crowdfunding platforms as well as funders and entrepreneurs was therefore a key part of the Startup Europe Crowdfunding.

The project has reached out to a large number of stakeholders through different means. Starting with a dedicated workshop, engaging some 70 people, we communicated the results to some 1,200 people directly plus spill over effect. The workshop results were strong recommendations with regard of data gathering and best practices for crowdfunding platforms with regard to transparency. Details of this were presented in deliverable 2, and have been the basis for further work presented in this report with regard to taxonomies and data collection. Following the workshop, we build a web portal with public information for web entrepreneurs with key introductions to crowdfunding and how to approach it. We also gathered a number of case studies to allow web entrepreneurs to better understand potential success factors.

In our research, both desk research and online consultation, we focused on identifying specific issues for web entrepreneurs with regard to crowdfunding in Europe. You can see the overall results in our infographic. Our desk research identified 230 crowdfunding platforms (we understand that this must be indicative in a fluctuating market and due to language barriers) of which some 13% (or around 30 platforms) have a focus on web entrepreneurship or similar activities, with France, Italy and Germany representing the largest share of the latter. The majority of all reviewed crowdfunding platforms offered a mixed approach of funding models (a hybrid of either two of the following reward and equity and debt). Reward based platforms were the largest single group with 19%, and we did not identify any donation based platform with a focus on web entrepreneurs. Some 68% of crowdfunding platforms had a multi country approach. Reward based crowdfunding platforms operating in multiple countries used to 55% two or more languages. We see a clear trend toward cross border operation within web entrepreneurship focused crowdfunding platforms, mostly reward but increasingly also equity.

There are 230 crowdfunding platforms in Europe today (entrepreneurship driven)

The average fund raising for web entrepreneurs is around €12,500 for reward and €113,000 for equity, which is line with expectations. The largest number of successful crowdfunding campaigns by web entrepreneurs were realised in Germany (24%), followed by Spain (17%) and France (16%). In total, 72% of web entrepreneurs’ campaigns that were successfully funded exceeded the funding goal. In our online consultation, we found that the reasons for web entrepreneurs to use crowdfunding are easy access to money (71.4% of respondents) followed by the difficulty/impossibility of obtaining funds from traditional financial actors, such as banks and professional investors, positioning crowdfunding as an alternative source of finance, the marketing “side benefit” of crowdfunding and the association with an innovative form of funding and communicating (all 57.1% of respondents). Some 30% of respondents did not use existing crowdfunding campaigns for their crowdfunding, but opted for a do it yourself or alternative model. Some 50% choose a crowdfunding platforms due to its legal structure and none of the respondents choose a crowdfunding platform because of prior success storied, links to government institutions or other business partners or indeed, transparency. Of the surveyed web entrepreneurs, none was seeking amounts higher than €250,000, but two thirds managed to run successful crowdfunding campaigns and 86% of respondents are expecting to use crowdfunding again in the next five years.

Asking those respondents that had not used crowdfunding so far, what kept them from it, showed that 28% indicated they did not know what crowdfunding platform to choose as the main reason for avoiding this financing form so far other than having sufficient funding already (32%).

When asking about how to foster crowdfunding in the EU, respondents that public data to prove that crowdfunding is a viable alternative source of finance would the main issue. Respondents also believed it is important to spread the knowledge about crowdfunding among (web) entrepreneurs and investors as well as promoting best practices. While a quality label as such did not rank high (it could be argued that if it would rate the above issues, it would) separate questions clarified that most of the respondents (32%) believe that a quality label should be supported by the European Commission. Also, all respondents expressed a positive opinion with regards to a quality label for crowdfunding. Asking specifically about the role of the European Commission, 61.5% of respondents would be in favour of the EC creating a legal framework of crowdfunding in Europe. Other activities that respondents deemed important for the EC to undertake in order to stimulate the crowdfunding market are: organizing workshops and trainings to explain web entrepreneurs how crowdfunding works (50%), potentially within ongoing access to finance and investor readiness activities and to support a quality label for crowdfunding platforms (46.2%).

In order to deliver data on the European crowdfunding market, we developed both, taxonomy and data collection framework. While we worked with existing market players to develop the taxonomy discussion from the workshop findings further, we linked the discussion also to the data collection framework. The European Crowdfunding Network AISBL has initiated a Technical & Accounting standards work group that is hoped to carry the work started within this project further into market implementation.

With regard to the data collection, we have identified hurdles in defining a roadmap for implementing a data collection & data distribution system. The main challenges for the framework on data collection and data publication are that data models are heterogeneous across data crowdfunding platforms and that their systems do not always enable data collection. Indeed, to technically enable platforms to provide data (in the required format) may carry significant costs to the contributing platforms (both for set-up and for operations). Those that do contribute also may wish to impose restrictions and conditions to the commercial use of their data. In addition, the scope of required data has to be thoroughly defined for each type of funding (e.g. reward based, equity, debt crowdfunding …) and is subject to significant operational costs for the data collecting agency, including maintenance of security control and access rules. We see the only solution for enabling exhaustive, comparable and accurate data collection is to define common data standards and models as well as to provide an ecosystem that is incentivizing the data remittance in a correct format and in timely manner